INTERNATIONAL BUSINESS

INTERNATIONAL BUSINESS; China's Once Undisputed Business Gateway Now Has Competition

By MARK LANDLER

Published: June 23, 2001

GUANGZHOU, China, June 20—
For the 200 or so businesspeople who jammed a hotel ballroom for a conference here, it was a typically Chinese affair. Dry speeches, the swapping of business cards, and a marathon banquet, with dutiful toasts to the shiny future of this southern Chinese city once known in the West as Canton.

But the mere fact that Guangzhou felt compelled to promote itself to the foreign companies it invited to the gathering this week attests to the changing winds in China. Guangzhou and its surrounding province, Guangdong, are reaching the end of a two-decade run as the undisputed gateway to China -- the only relatively open place in a closed country.

With China preparing to enter the World Trade Organization and barriers to foreign companies falling, other Chinese cities -- with Shanghai chief among them -- are vying for the investments that would once have been Guangdong's alone.

''Other people are learning from us,'' said Chen Ming De, director general of the city's trade and economic relations commission. ''When you open up, you create new rivals. But Guangzhou will not be left behind.''

Mr. Chen and other officials talked up attractions like a new airport and an upgraded port, and they pledged to clean up Guangzhou's blighted environment. They pointed out that the city has no fewer than seven technology parks, with names like Photon Valley, Science Town, and International Bio-island.

But Guangzhou is meeting setbacks in precisely the fast-growing industries those names evoke. For example, one of China's first semiconductor plants, a $1.63 billion project backed by Winston Wong, the scion of one of Taiwan's richest families, is being built in a technology park in Shanghai, not in Guangzhou.

When China began opening its economy in 1979, investors from Hong Kong and Taiwan tended to flock to Guangdong, which besides proximity to Hong Kong also had the advantage of a provincial government proudly independent from the Communist cadres in Beijing.

Guangdong and neighboring Fujian Province together soaked up 70 percent of all Taiwanese investment in the mainland in the 1980's. But in the first nine months of 2000, almost half went to Shanghai.

''Guangdong Province still hosts the highest amount of Taiwanese investments,'' Jerry Lu of CLSA Emerging Markets wrote in a report. ''But it is only a matter of time before this leadership vanishes.''

Foreign companies say they are drawn to Shanghai by its many universities, which produce a better-educated work force. They also want to be close to the anointed financial capital of China. And China experts say that because both the president of China, Jiang Zemin, and the prime minister, Zhu Rongji, are former mayors of Shanghai, the city has better political connections.

Guangdong's defenders say those connections will count for less after China joins the World Trade Organization. What will matter, they say, is that officials here have long experience in dealing with foreigners.

''In some parts of China, you worry when there is a change in officials that you may no longer be welcome,'' said Eva Cheng, the chairwoman of Amway China. ''But here, being open to foreigners is not a recent attitude.''

Ms. Cheng knows firsthand the vagaries of China's bureaucracy. In early 1998, Beijing banned door-to-door sales of products because of widespread abuses by unscrupulous operators. The ruling threatened her company, the local unit of the Amway Corporation, based in Ada, Mich., one of the world's biggest direct-sales businesses.

Ms. Cheng said Guangdong Province, where Amway China is based, helped the company identify the right Beijing officials to appeal to, and eventually the company negotiated a compromise, under which it is allowed to keep its door-to-door sales force as long as it also opens stores.

Other foreign executives said Guangzhou and Shanghai could both prosper if they developed distinct niches. Guangdong will probably remain a base for production of consumer electronics and desktop computers, they said, while Shanghai will dominate in semiconductors and notebook computers.

''I think people are underestimating Guangzhou,'' said Steven Carroll, the representative of Motorola in China. He said his company, had larger investments in China than any other American concern, mostly around Beijing, but was considering opening a research and development center here. Mr. Carroll said Guangdong was Motorola's biggest cellular telephone market in China.

Guangzhou's location close to the financial center and port of Hong Kong would seem to be an advantage, but puzzlingly, almost no mention of Hong Kong was made at this week's conference, either by Guangzhou officials or by visiting executives.

''The synergies between them could be enormous,'' said Dong Tao, an economist at Credit Suisse First Boston. ''But Hong Kong's integration into the Pearl River delta actually seems to have slowed'' since China resumed sovereignty in 1997.

Some foreign executives chalk up the omission to the chauvinism of people here, who believe -- after two decades of torrid economic growth -- that they will always be the trail-blazers on China's road to capitalism.

''They are not scared,'' said Patrick Bourrier, the director of international affairs at Alcatel, the French telecommunications equipment maker, which recently consolidated its Asian headquarters in Shanghai.

''Maybe they are still too proud,'' he added, ''because they think they are the leaders in everything.''

Photo: A computer factory in Guangzhou, a Chinese city that is trying to attract technology investments. (David G. McIntyre/Black Star)(pg. C2) Map of China highlighting Guangzhou: Guangzhou and Shanghai are competing for foreign investments. (pg. C1)